James Hardie Industries plc (JHX) Q4 2021 Earnings Call Transcript

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James Hardie Industries plc (JHX 0.56%)
Q4 2021 Earnings Call
May 19, 2021, 4:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to James Hardie's Q4 FY21 Results Conference Call. Today's call will be hosted by Dr. Jack Truong, CEO; and Mr. Jason Miele, CFO. There will be a presentation followed by a question-and-answer session. All participants are in a listen-only mode. [Operator Instructions]

I would now like to hand the conference over to CEO, Dr. Jack Truong. Please go ahead.

Jack Truong -- Chief Executive Officer

Good morning and good evening everyone. Thank you for joining us on our fourth quarter and full fiscal year 2021 earnings call. I will begin today's call by discussing business highlights from the global company perspective. After I go through business highlights, our CFO, Jason Miele will cover our fourth quarter and year-to-date fiscal year 2021 financial results. I will then provide a brief preview of our upcoming Annual Investors' Day, after that we'll open up for questions.

Let's now turn to Page 5, for a review of business highlights. Now before I discuss the success to date of our strategic transformation, I think it is important to provide some context to why the transformation was required. What you see on this page is the financial performance of James Hardie over the five years between fiscal year 2015 and fiscal year 2019. If you look at the performance over the five years prior to fiscal year 2020, you will see stable and average financial results were profitable growth has stalled. Net sales grew at a compound annual growth rate or CAGR of 7%. Adjusted EBIT CAGR of 7%, adjusted net income CAGR of 9%. This was clear lack of leverage on our incremental sales growth. And lastly, looking at operating cash flow, again what you see it just modest growth with a CAGR of 13% over the same five years. These results reiterate a lack of leverage within the business and the inability to generate significant cash flow with each additional dollar of sales. When we look at these financial results holistically, they do not reflect the results of a high performing global company, which is our mission.

Let's now turn to Page 6 to discuss the new James Hardie and our transformational progress. You will recall that in February 2019, I laid out what would be the first steps in our transformation to become a new James Hardie. The first initiative we undertook was foundational step change in terms of leverage on our scale as the world's largest fiber cement producer to become a world-class manufacturer, through the execution of James Hardie LEAN manufacturing strategy. Our network of plants is on a continuous improvement path, while being more predictable with less variability in production output, better quality, and lower cost. Progress in this initiative has enabled us to be a better partner to our customers. Globally, through the end of fiscal year 2021, we have generated over $107 million in LEAN savings. Continued focus on this foundational elements of our transformation will be critical to building scale and enabling future profitable growth globally.

Second, we transform our commercial organization to be truly customer focused. We took direct action to shift from an organization that focus solely on current demand with home builders and contractors, to partner in more closely with our customers to enable profitable growth for them and also for James Hardie. Instilled in this true customer-focused mindset throughout our company has been critical to driving our growth above markets, while taking market share in all three geographies during the past two years. This connectivity to our customers and a shift to the Push/Pull strategy drove profitable growth, on profitable growth in our North American business over the past eight quarters. Specifically, we delivered net sales growth of 8% in fiscal year 2020 and 12% growth in fiscal year 2021, which is 8% over the previous five fiscal years. And expansion of EBIT margin to 29% from 24%. Additionally over the past two years, we have significantly expanded our European business, highlighted by net sales increased EUR350 [Phonetic] million in fiscal year 2021 from EUR318 million in fiscal year 2019. And adjusted EBIT increased 4 times to EUR36 million in fiscal year 2021 on EUR9 million in fiscal year 2019.

We also saw strong results in our Asia-Pacific region, where adjusted EBIT margin expanded to 28% from 24%. The first step in our transformation was the integration of our supply chain with that of our customers for mutual benefits. This critical integration ensure that we are able to continuously service the market seamlessly through our customers, provide them with the products they want, when they need them. During fiscal year 2021, we delivered record operating cash flow of $787 million, a 2.6 times increase from fiscal year 2019 operating cash of $304 million. Underpinning our entire transformation with the implementation of a globally integrated management system. This management system enable us to make better and more holistic decisions at the right time across various levels within the company. The successful execution of global strategic plan is a testament to the hard work and dedication of all James Hardie employees from around the world. We consider those progress we made that allow James Hardie to deliver record global net sales and global adjusted EBIT for three consecutive quarters. In fact, for fiscal year 2021, all three of our operating regions delivered double-digit growth in EBIT. While the financial results across the past two fiscal years are commendable, it is the transformation itself that has created a new James Hardie, with a strong foundation on which to build. We believe it is this foundation that will enable us to scale and to drive significant future profitable growth for our company globally.

Let's now turn to Page 7, to discuss our step change in financial results. When you take a step back and look at the progress we made during the past two years to fundamentally transform our company, I'm pleased with the financial results. We delivered a step change in our financial results during the past two years, including record in global net sales, global adjusted EBIT, global adjusted net income, and global operating cash flow in fiscal year 2021. We increased net sales by $400 million globally in fiscal year 2019, a 16% increase over two years. More significant than that, we increased adjusted EBIT and adjusted net income by 25% and 23% CAGR respectively over the past two years. What this indicates is that as a global company, we have been able to increase our leverage in a way that every incremental sales dollar returns much more profit to the bottom line. Most impressively is the significant increase in operating cash flow over the past two years. The financial results delivered during the past two years reaffirm that we are on the right path of being the high performing global company.

Now shifting to Page 8. Over the past 24 months, we delivered strong revenue growth and EBIT growth across the three regions. We expanded the scale and scope of James Hardie as a global company and also expanded its scale and profitability of each region. The acquisition of Fermacell two years ago, along with the successful integration and expansion of our European business now truly position us as a leading global building material company. Our global management system has been key in enabling us to replicate global strategy across all three regions, while at the same time allow our regional teams to execute the plan locally to deliver on the results for the region and for total company.

Moving on to Page 9, for an update on our FY 2022 and FY 2024 targets. Reflecting on our step change performance and executing on lean manufacturing strategy and push/pull strategy to deliver consistent financial results globally. I'm very pleased to announce today that we are upgrading our global adjusted EBIT margin targets for fiscal year 2022 through fiscal year 2024. In North America, our historical adjusted EBIT margin target range of 20% to 25% is now increased to a new range within 25% to 30% annually for the next three years. Similarly, in our Asia-Pacific region, our historical adjusted EBIT margin target range of 20% to 25% is now increased to a new range of between 25% to 30% for the next three years. In our European business, the average annual adjusted EBIT margin will be increased to between 11% and 16% for the next three years. The previous target was 10%. These new global target for adjusted EBIT margin reflect the progress we have made during the past two years to fundamentally transform our global business. We believe that the new James Hardie, we will continue to deliver growth above market and strong returns.

Turning to Page 10 for a summary of global results for the fourth quarter of fiscal year 2021. The fourth quarter of fiscal year 2021, marked the eighth straight quarter of delivering consistent financial results globally, with all three regions delivering strong profitable growth. Specifically in the fourth quarter, we delivered $807 million of global net sales, which is 20% increase versus the prior corresponding period. And we delivered global adjusted net income of close to $125 million, which was an increase of 44% over the prior corresponding period. Most importantly, we delivered strong financial results in all three regions for the third consecutive quarter. All three regions delivered double-digit growth in both net sales and EBIT. In North America, we delivered net sales of $555 million, a growth of 17% with strong EBIT of nearly $153 million, an increase of 27% over Q4 of previous year. These are excellent results given that we comp, a very strong Q4 of the previous year that had a net sales growth of 12% and EBIT growth of 26%. Further, we continue to deliver strong EBIT margin of 27.5% for the quarter.

In Europe, we delivered record net sales of close to EUR105 million, a 12% increase over the prior corresponding period and we exit the quarter with an EBIT of EUR15.7 million at a record EBIT margin of 15%. And in Asia Pacific, we delivered net sales growth of 11% in Australian dollars with EBIT of AUD43.7 million and an excellent EBIT margin of 26.9%, marking our eight straight quarter of delivering global growth with strong returns, these results reflect our continued ability as a global company to execute on our global strategy across all three regions.

I would now like to turn over to our CFO, Jason to provide additional details on our financial results.

Jason Miele -- Chief Financial Officer

Thank you, Jack. Good morning and good afternoon everyone. I will start on Slide 12 with our global results. This is our eight straight quarter of generating strong global financial returns and our third straight quarter with record global results. And this marks the third consecutive quarter, we have been able to deliver strong results in all three regions simultaneously. In the fourth quarter, each region delivered double-digit net sales growth and double-digit EBIT growth. In the fourth quarter, global net sales increased by 20%. This represents significant growth on growth as last year in the fourth quarter, we increased net sales by 8%. Globally, our customer focus and customer integration strategy continue to become embedded in every country we do business in and drive these strong top line results. Net sales of $807 million in the fourth quarter, represents a record quarterly results for James Hardie. Due to continuous improvement of LEAN manufacturing globally and integration of our supply chain with our customers, we are able to translate that strong topline result into an even stronger bottom line outcome. Global adjusted EBIT improved 43% and global adjusted net income increased 44% in the fourth quarter. Global adjusted net income in the fourth quarter of $124.9 million also represents another all-time record high for James Hardie in the quarter. For the full year, adjusted net income increased 30% to $458 million. Operating cash flow for the full year increased 74% to a record $786.9 million. And as Jack just discussed earlier, we have transformed into a new James Hardie over the past two years. And the global financial results in fiscal year 2021 reflect that transformation.

I'll now review each region in more detail, starting with North America on Page 13. In North America, the team delivered another excellent quarter. In the fourth quarter, net sales increased by 17% to $555.3 million. This represents the highest net sales in one quarter ever achieved by the US business. It is also worth noting the fourth quarter results represent significant growth on growth. That is, we had a strong fourth quarter last year as well, when we delivered net sales growth of 12% in the fourth quarter, which we have now been able to improve upon by another 17%. This significant growth is driven by our continued focus to partner and integrate with our customers. The full-year net sales result of just over $2 billion, is also a record for North America and it marks the first time we had exceeded $2 billion in net sales. In addition, our exteriors volume increased 12% in the fourth quarter and 11% for the full year, driven by continued share gain as our team continues to focus on customer engagement and integration.

Our outstanding topline results in North America were coupled with even better adjusted EBIT growth, which increased by 27% for the quarter to $152.9 million and 25% for the full year. We also expanded our EBIT margins in fiscal year 2021, delivering a full year adjusted EBIT margin of 28.8%, a 290 basis point increase from the prior year. The outstanding adjusted EBIT and margin results for both the quarter and full year were driven by volume and price mix growth, strong organic volume growth, continued LEAN manufacturing savings and lower SG&A, partially offset by higher freight costs. The North American team is now delivering consistent double-digit net sales growth at a step change EBIT margin level, as we transformed over the past two years into a new James Hardie, the foundational improvements provided by LEAN, our Push/Pull strategy and supply chain integration with our customers have provided us the confidence to raise the target adjusted EBIT margin range for North America. As Jack just stated, we increased our target EBIT margin range to 25% to 30% for fiscal year '22 through fiscal year '24.

Turning now to Page 14 to discuss the Europe results. In Europe, the team delivered a third straight quarter of strong results. In the fourth quarter, net sales increased 12% to a record EUR104.6 million, this follows net sales growth of 8% in the second quarter and 12% growth in the third quarter. For the full-year, net sales of EUR350.6 million also represents a record full-year result. The teams focus on our Push/Pull strategy and replicating best practices from our North America and Asia-Pacific businesses continued to deliver improved topline results as the year progressed. The team remains focused on driving gross margin improvement through growth and high margin products and continued penetration in existing and new fiber cement markets. Fiber cement net sales increased 24% in the fourth quarter. Most impressively, adjusted EBIT margin of 15% for the fourth quarter also represents a record result for Europe. Fiscal year '21 represents a third full-year since acquisition. The team is now fully integrated into James Hardie and the European business exit fiscal year '21 with significant momentum. The new James Hardie will be a high-performance global company and our European business is an important part of our global footprint. The team's success in executing our strategic initiatives has provided us the confidence to raise the Europe adjusted EBIT margin target range to 11% to 16% for fiscal year '22 through fiscal year '24.

Let's now move to Page 15, for our strong Asia-Pacific results. In the fourth quarter, net sales increased 11% in Australian dollars compared to the prior corresponding period. This topline growth was led by continued share gains in Australia and New Zealand and 25% net sales growth in the Philippines. The strong topline results in the fourth quarter were translated into even stronger earnings results with adjusted EBIT growth of 46% in Australian dollars at an adjusted EBIT margin of 26.9% for the fourth quarter. The excellent fourth quarter performance in our Asia-Pacific region was driven by execution of our strategic objectives, including customer integration and LEAN manufacturing. In addition, you will recall, earlier this fiscal year, we announced we are consolidating our regional production for Australia/New Zealand to a two Australia-based manufacturing facility. We also closed unprofitable James Hardie Systems business. These adjustments in addition to the team's execution of our strategic objectives have helped drive the improved adjusted EBIT margin performance in Asia-Pacific. But full-year adjusted EBIT margin expanded to 28% as a result of this continued performance improvement. We have raised the Asia-Pacific adjusted EBIT margin target range for fiscal year '22 through fiscal year '24 to be between 25% to 30%.

Moving now to Page 16 to discuss operating cash flows and capital expenditure. Operating cash flow increased 74% for the full year to $787 million. The step change performance in operating cash flow was driven by an increased profitable sales globally and further integration with our customers to reduce working capital for both them and us. The step change in cash flow performance has enabled us to improve our liquidity position and return capital to shareholders, which I will discuss further in a few slides.

Shifting to the right hand side of the slide, you'll see a summary of our capital expenditures. For the full-year, capital expenditures totaled $111 million. Over the past six months, we have added key capacity additions to enable our continued profitable organic growth, specifically in Asia Pacific, we commissioned a new sheet machine in Carole Park, during the third quarter of fiscal year '21, which has additional capacity to service our Australia and New Zealand markets, with high value building products.

In North America, our greenfield capacity expansion in Prattville, Alabama remains on track. Sheet machine Number 1 in Prattville has been shipping products to customers since March 2021 and ramping up ahead of our internal targets. Further sheet machine Number 2 in Prattville remains on track to be commissioned in July. Adding the right capacity at the right time positions us to continue to drive market share gains and flow products to our customers and the end users. At Investor Day next week, we will discuss capacity expansion further specifically capacity expansion plans for the next few years. We expect the total capital expenditures, including regular maintenance to average approximately $250 million per year for the three year period of fiscal year 2022 through fiscal year 2024.

Let's turn to Page 17 to discuss our liquidity profile. The execution of our global strategy has led to significantly improved cash flow, invest continuous improvement in our liquidity and leverage position over the past 12 months. During the year, we are able to reduce our debt levels while maintaining strong liquidity and financial flexibility. As announced on January 15, 2021 we redeemed $400 [Phonetic] million of senior unsecured notes. The redemption of these notes will save us approximately $20 million of interest expense per year. At March 31, 2021, we had liquidity of $703.8 million and a net leverage ratio of 0.9 times, a significant improvement over the past 12 months.

Now moving to Page 18 for an update on capital management and allocation. Our strong capital structure and cash flows have enabled us to execute on all of our capital allocation objectives. We continue to preserve a strong liquidity position and financial flexibility, we are positioned to continue to invest in organic growth including capacity expansion, market driven innovation and marketing directly to the homeowner. In January, we reduced debt by $400 million and in April we returned over $300 million to shareholders via the previously announced special dividends. We have a strong balance sheet and a strong liquidity position to execute on our organic growth priorities.

And finally, please turn to Page 19 to discuss guidance. As announced this morning, we are introducing, full-year fiscal year 2022 guidance. Our guidance for the full year adjusted net income is range of between $520 million and $570 million. The comparable figure for the prior year, fiscal year 2021 was $458 million. This guidance range represents a 14% to 24% year-on-year improvement in adjusted net income. Included in this guidance range, as well as the new increased adjusted EBIT margin target, we expect significant cost headwinds due to the inflationary pressures we are experiencing worldwide. Globally, we are anticipating between $100 million to $150 million in cost headwinds in fiscal year '22 versus fiscal year '21. These cost headwinds are primarily driven by pulp, pallets, and freight. We believe we can mitigate these headwinds and deliver adjusted net income of between $520 million and $570 million by executing the following. One, drive a richer product mix based on market demand and disciplined price management, two, continued execution of LEAN manufacturing, three, continued execution of our Push/Pull strategy and customer integration to deliver growth above market and flow product to the wall and four, deliver incremental capacity in the right place at the right time to meet market demand. As previously mentioned, we have also increased our target ranges for adjusted EBIT margin in each region for the periods of fiscal year '22 to fiscal year '24. North American target adjusted EBIT margin is now 25% to 30%, Asia Pacific target adjusted EBIT margin is now 25% to 30% and Europe target adjusted EBIT margin is 11% to 16%.

I will now hand the call back over to Jack to go through a brief preview of our Global Investor Day that will take place next week.

Jack Truong -- Chief Executive Officer

Thank you, Jason. Now moving to Page 21 for a preview of our upcoming Investor Day. I have share earlier the past two years was about building a strong foundation to transform our company into a new James Hardie. A company that deliver consistent profitable growth globally. This transformation has been about becoming a world-class manufacturer through our execution of LEAN manufacturing strategy, becoming more customer focused via building stronger and more integrated partnership with our customers and become more integrated with our customer supply chain for mutual benefit. All of our initiatives are underpinned by a globally integrated management system that allow us to make better more holistic and faster decision across various levels within the company. The strong foundation we have built over the past two years and enable us to drive consistent profitable growth on a global scale. I'm very excited today to share with you additional details about this next phase of our transformation. There are three critical strategic initiative in this next phase of profitable organic growth. Number one, expand James Hardie brand from the premier professional brand into a market leading global consumer brand that focuses on the homeowners to create demand. Number two, global innovation that allow us to expand into other exterior looks to grow into adjacent categories. Number three, penetrating and driving growth in existing and new markets and segments.

Now turn to Page 22, for a summary of integrated marketing campaign. The first of the three key strategic initiative is our new 360 degree integrated marketing campaign that target homeowners directly to create demand. Historically, James Hardie brand has resonated strongest with professionals and it evoke a brand that's well appreciated and trusted with products that are durable, low maintenance, and non-combustible. We are now excited to extend James Hardie brand into a consumer brand where we market directly to homeowners and communicate to them the endless possibilities of a product end design that our products offer in addition to the superior properties of our technology. By marketing directly to the homeowners, we believe it will create even more demand and enhance the emotional attachment to James Hardie brand products. At our upcoming Annual Investor Day, our marketing team will share some exciting details of this new 360 degree integrated campaign.

Shifting now to Page 23, for a summary of our global innovation. The next focus about upcoming annual Investor Day is on global innovation that will transform the way the world builds. As I mentioned during our Q3 earnings call, our approach to innovation is about developing market driven innovation to drive profitable organic growth. We believe our market driven innovation strategy will increase of growth opportunities by opening new markets and expanding on existing markets. What you see on this slide are four example of our four new innovations in action. On the top left, is an example of new fiber cement interlock and plant products for the European markets. This image is from a project in UK that is currently used on new Hardie brand VL planks in a very dramatic design forward manner. Back in our Q3 presentation, I shared that in Europe interlocking planks make up roughly 80% of plank markets. Interlocking plank is a natural product portfolio extension for us in Europe, new fiber cement growth. It enables us to provide our customer with a full suite of fiber cement plank products that are quicker to install, that enable homeowners to have endless possibilities of beautiful designs, getting into long lasting beauty and trusted protection of James Hardie Fiber Cement technologies.

On the top right and the bottom left pictures you see examples of our North American innovation featuring two homes built with Hardie texture panels that deliver a [Indecipherable]. On the bottom right you see a picture from a completed project in Australia that was built with our latest innovation Hardie [Indecipherable]. You will hear more details during our Annual Investor Day, what I can tell you is that we are all very excited by these true market driven innovations that will provide homeowners with endless design possibilities for maintaining trusted protection and low maintenance that have come to expect from James Hardie. Ultimately, these true market driven innovations will expand opportunity for future organic growth for our company. I can't wait for you to hear more in our upcoming Annual Investors' Day.

Now turning to Page 24, James Hardie Annual Investor Day will take place as one session on Monday, May 24 within 5:00 PM and 7:15 PM New York City time or Tuesday May 25 between 7:00 AM and 9:15 AM Sydney, Australia time. The session will be recorded and available on our Investor Relations website. You can sign up for the session at the link shown on this slide. The agenda for the day is broken into three major sections. An update and our overall strategy and the focus for the next two years and a deep dive into our new global initiative of growth through marketing to homeowners and three, growth through global innovation. We look forward to sharing additional detail with you on all of these three topics. We are very excited for the future that lies ahead of our company.

Now I would like to open up for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from Peter Steyn from Macquarie Research. Please go ahead.

Peter Steyn -- Macquarie Research -- Analyst

Good evening, Jack and Jason. Thanks very much for the opportunity and congrats on good results. A quick question just in relation to North American topline. Jack, could you give us a bit of a sense, there's obviously a few things moving around at the moment, the ability to meet the market where demand is at this point, given pratfalls ramp up? And then there were obviously some disruptions from a weather perspective in the quarter. Could you give us a bit of a sense of how the Texas weather events played out for you and comment on your ability to meet demand right at this point, given that the second line at Pratt falls only due in July?

Jack Truong -- Chief Executive Officer

Yeah, good morning, Peter. Thanks for your questions. Right now as you mentioned our Prattville facility is ramping up very nicely. And then so with our ability now to be integrated closely with our customers, we are going to take the demand that future forward demand for our customers and we -- it was to have the right production plan and allow us the flow product from our plant into the marketplace and so that has been really the key driver for us to -- to really manage through the growth within the quarter despite the disruptions that we had -- pulled out eight days in February, we had a decrease in Texas. And as you know, we have two big plant in Texas that service the markets. So, but given the lean approach that we have had in our company, the integration of our customers and then the really the great collaboration between the different function within our company, we're able to mitigate the temporary shutdown of our plant for those eight days and be able to come back strongly to serve the market and to be able to the finished the quarter strong, so that you saw in our results.

Peter Steyn -- Macquarie Research -- Analyst

Thanks. Thanks, Jack. And your ability to serve the market, therefore, continues unabated, notwithstanding the fact that Prattville still ramping up?

Jack Truong -- Chief Executive Officer

Yes. So, we are -- Prattville continuing to ramp up. And then we are, as [Indecipherable] also mentioned, our line 2 in Prattville will also be ramping up through the middle of this summer. And we also have added additional capacity to our [Indecipherable] plant that we just now start to be increased. Really the key is that we currently see a strong demand in the marketplace and it is also the same time that we as we connect more and more without -- we've been with homeowners in the marketplace and [Indecipherable] deliver more value, and really understand more about the needs of the homeowners and we were to work closely with our customers that really flow out and more high-value products to the marketplace such as the color products such as trends and more branded Hardie products that allow us to capture more value and we will deliver with the products that the we -- that market needs. So as more -- as you may continue to be strong, we're able to deliver there is high value James Hardie product to the marketplace.

Peter Steyn -- Macquarie Research -- Analyst

Thanks, Jack. I'll leave it there.

Operator

Thank you. Your next question comes from Keith Chau from MST Marquee. Please go ahead.

Keith Chau -- MST Marquee -- Analyst

Good afternoon Jack and Jason. First question Jack. I guess I will get only once, so maybe I'll ask a follow on to Peter's in another way. Have you gotten enough product to supply the market without putting your customers on allocation? And that's the follow on. And then my question is, there wasn't any mention of PDG within the materials releases at all. So I know you've been talking about growth above market, but in your LTI's, these are target in there of 6% to 8% between FY21 and FY23. So I don't know if you'd be talking about in your Investor Day next week, but can you give us a sense of what your volume aspirations are going forward and what was previously considered PDG, please?

Jack Truong -- Chief Executive Officer

Yeah, so let me answer your second question first. The calculation of PDG is not an exact science, and there is something that we rather than look at on a quarterly basis. We looked at it on an annual basis to have little more -- more accurate description of what's going on. But if you look at the PDG of growth of our market in fiscal year '20 and fiscal year '21 in both of those years we average 7% to 8% in a year and that's -- that is the growth rate that we -- that we aim to continue to deliver and that is really part of our plan and I think that was highlighted by Jason during the guidance that we gave for the net income this year.

And then coming back to your first question. Yes, we are able to supply the market and so I think it's something that is also very important as such we have alluded to during in the call, is that since this is a strong demand markets and at the same time there is also a strong inflationary environment that we're in and also for us now that we are a lot more connected to the homeowners really understand what are the true needs of the -- of the homeowners and the market and by doing that, we're able to really work with our customers to really be able to [Indecipherable] market and sell more of the high value products that we look to focus on those rather than just produce and then sell to the low end products. At the end of day, what we are trying to do in a strong demand and high inflation period, it is about making sure that [Indecipherable] the manufacturing asset are really leverage accordingly. If you serve the market needs from the homeowners' perspective, builders perspective and our customers' perspective and as well as James Hardie.

Keith Chau -- MST Marquee -- Analyst

Thanks, Jack. Perhaps just as a follow on a hypothetical question, and I know it different by region, across the US, but hypothetically once Prattville comes online, how much growth do you think you could deliver to this market or how much more capacity do you have to deliver growth into this market? Would it be something like 15% total volume growth, 20% volume growth, can you give us a sense of that please?

Jack Truong -- Chief Executive Officer

You know Keith, like what I mentioned in your last answer to your last questions is that what we'll be looking at is really now, more about making sure that we drive more value of production coming off of our production lines rather than just looking at pure volume. We want to make sure that we as we invest in new capacity that we want to make sure that we leverage on the new capacity as well as the existing capacity to produce more of the high value products that James Hardie offers to homeowners want. So hypothetically if our customers really look to buy more of [Indecipherable] which is [Indecipherable] plank, we work closely with our customers to ensure that the market is actually more of Hardie plank than just selling [Indecipherable] for example. They are always going to be place for some plank is a good to sell to but in general, most upon particularly in this high demand time, there's been more toward the Hardie brand products.

Keith Chau -- MST Marquee -- Analyst

Thanks, Jack. I'll circle back. Thank you.

Operator

Thank you. Your next question comes from Brook Campbell Crawford from JPMorgan.

Brook Campbell Crawford -- JPMorgan -- Analyst

Yeah, thanks for taking my question. Just first one around price for Jason. Probably, I think the last update, talking about 2% to 3% effective price increase through the top line and North America in FY '22. Just wondering if you can provide an update on that, if that's still an appropriate target for us? And I have a follow-up as well.

Jason Miele -- Chief Financial Officer

Yes, right. Brook we took a price increase on January 1 in North America. That price increase went through approximately 3%. And now as Jack mentioned there few times, we're definitely very focused on delivering the right price mix that our customers want and at the end user wants. So we have a heavy focus on price mix and so we intend to achieve a better printed price outcome in the financial results, but the price increase went through on January 1.

Brook Campbell Crawford -- JPMorgan -- Analyst

Thanks for that. And just on the new products, are you planning to provide any sort of sales targets around that for FY '22? And including in that, have you factored any sales relating to new products in '22 guidance?

Jason Miele -- Chief Financial Officer

We'll talk more about the new products and targets and what not Brook, at the Investor Day. We don't want -- we want to make sure we talk about the MPI, those new products more ultimately at Investor Day next week. But certainly there are amounts within the guidance that are considered.

Brook Campbell Crawford -- JPMorgan -- Analyst

Okay, thanks.

Operator

Thank you. Your next question comes from Simon Thackray from Jefferies Australia. Please go ahead.

Simon Thackray -- Jefferies Australia -- Analyst

Thanks, Jack. Thanks Jason. Jack I'd never really thought about framing my long-term commitments with the footnote that said only until FY24. So I just want to understand the context of that guidance against the margins delivered in FY21 given the benefit you got from SG&A, and what happens going forward given the cost headwinds you've called out of $100 million to $150 million, I think you did, Jason. So just in that framework, I just want to understand the relative SG&A benefit in the delivered margins in FY21? And what the expected growth in dollar terms is for SG&A in the regions in '22? And then just to finalize so I get a clear picture, what the role of prices is in '22 in offsetting the cost escalation?

Jack Truong -- Chief Executive Officer

Yeah, so let me answer that strategically and then Jason can fill in some little bit more context on the details. So you know the way to think about is that we're never, we are -- we're a company that is based on organic growth of our markets. So we are still really driving through our plans all about how we will continue to drive growth above market with strong returns and the sudden 8% growth of our market is our objective. So, it is really about having more volume through [Indecipherable] now continue to be leading network of plants. So that's -- so that is -- that is the first really key driver for our margin expansion. Number 2 is, continue to drive LEAN. So as we get more volume to our plants and as we continue to improve our LEAN execution, then we should -- we should really just continue to have the leverage to savings. And third, this is very, very important. We have really the key that I have really answer to Keith and Peter is that it's not only about volume growth and [Indecipherable] about volume price mix is that, is that we have to make sure that we continue to as a market leader is that role to continue to add more value to the marketplace from the homeowners, our customers and back to us and that is make sure that we deliver the product that the market needs and wants and that is the high-value products, and that means that as we continue to have LEAN manufacturer of high-value products and that would leverage into our margin. So that would allow us then have the flexibility to invest in the SG&A that will go into innovations that will go into market and directly to the home owners so that we can continue to create new demand that increase more volume, it's continued high value product through our plants and then really keep driving profitable growth, on profitable growth consistently across the three regions that we operate in around the world.

Simon Thackray -- Jefferies Australia -- Analyst

That makes sense to me. So just in the regional contribution to margin from lower SG&A in FY21, given what was happening with COVID of course and lower travel, etc. So what was the regional contribution to SG&A to margin and in FY21?

Jason Miele -- Chief Financial Officer

Yes, and I think in the past we said we're going to reinvest about 200 basis points of SG&A over the next several quarters and we will be doing that. So as you look forward in the guidance we gave, there is $100 million to $150 million of inflationary pressure. We will invest in marketing and SG&A, the marketing investment is roughly $45 million for the -- it's possible campaign and the associated items. And then we will invest in innovation and talent capability. And with all those investments as well as then inflationary pressure, that is the guidance $520 million to $570 million adjusted net income and those increases over the EBIT margin ranges. So --.

Simon Thackray -- Jefferies Australia -- Analyst

I understand that, that's super helpful.

Jason Miele -- Chief Financial Officer

And price improvements.

Simon Thackray -- Jefferies Australia -- Analyst

That's super helpful. I was actually asking what the contribution was from lower SG&A to regional EBIT margin outcomes in FY21, given it was lower for the reasons described? How much -- how many basis points of improvement from lower SG&A in North America, Europe in respect?

Jason Miele -- Chief Financial Officer

Roughly $200 million we will reinvest.

Simon Thackray -- Jefferies Australia -- Analyst

I see. Okay, thank you.

Operator

Thank you. Your next question comes from Sophie Spartalis from Bank of America. Please go ahead.

Sophie Spartalis -- Bank of America -- Analyst

Good evening. Jack and Jason, thanks for the details today. I just wanted to explore a little bit of math around this higher volume price mix. You talked to us about it very much at a top level, but what is that ideal volume price mix going forward versus where you are today in terms of new products existing products?

Jack Truong -- Chief Executive Officer

Yeah, you know, we will talk more on the Annual Investors' Day, but clearly key for all the innovation is really about driving to better on the wall costs. And so, anything that we can take out cost in the teams that and create more value in the marketplace and that can be reflected on the price of the new products. So you, for example, the new products that we launched -- that we have to share with you right now and then the average net selling price for that product on the same feet compared to the Hardie plant is about 2.5 times more. So you can see that as we gained shifting to more high-value products that deliver value, real value to the marketplace, we can really delivering higher profit margin at would be -- this would be this -- for the teams asset base. And so it is really the approach and the strategy that we drive going forward.

Sophie Spartalis -- Bank of America -- Analyst

So Jack just in terms of that margin guidance that you've provided. How much of that -- just as a rough guide, are you assuming, because you said Jason that new products are included in the margin guidance like what's that growth trajectory of those new products coming into that price mix to give you that margin range?

Jack Truong -- Chief Executive Officer

Sophie, it's too early to disclose it right now, Sophie.

Sophie Spartalis -- Bank of America -- Analyst

Okay. Okay. No, that's fine. Thank you.

Operator

Thank you. Your next question comes from Lisa Huynh from Citi. Please go ahead.

Lisa Huynh -- Citi -- Analyst

Hey, good morning, Jason and Jack. So, I just had a question in terms of the renovation market, we're seeing higher raw material costs drive out the cost of building a home. Can you talk about whether you're seeing any risks merge for demand in any VK end markets as a result of the higher cost of construction, particularly in construction, but also renovation? Thanks.

Jack Truong -- Chief Executive Officer

Well, actually you know the story know that right now there is a -- there is a big shortage of lumber in the marketplace across North America and Australia and New Zealand. And so that in general effect more in the new construction and not so much in the renovation originally model in markets and it is the market that we see huge opportunity, which I have discussed in the third quarter earnings call. And it is also an area that really the key focus for us going forward, particularly the initiative of marketing to the homeowners. It is really our opportunity to reach directly to those homeowners who live current home that needs to be remodel and renovated. And then for the homeowners, we understand what James Hardie exterior solutions that we deliver. And so that they -- they can help them make better decision and quicker to renovate the home with James Hardie products. So that is a huge growth opportunity for us going forward.

Lisa Huynh -- Citi -- Analyst

Okay. Sure. Then I guess just on the theme of inflation, given a one quarter lag to what typically happens in prices, do you see any kind of ability to offset this through buying terms going forward?

Jack Truong -- Chief Executive Officer

This -- is your question about how we procured raw materials?

Lisa Huynh -- Citi -- Analyst

Yeah, just whether there is any ability to kind of offset the inflation, we are kind of seeing going forward, yeah, through procurement savings or anything of the like?

Jack Truong -- Chief Executive Officer

Yeah, procurement teams worldwide did a good job again with the best possible pricing leases. But I think the inflationary pressures are global and at this point $100 million to $150 million headwind includes our ability to procure better than maybe some others, but that would all be considered in that estimate we provided today.

Lisa Huynh -- Citi -- Analyst

Thanks.

Operator

Thank you. Your next question comes from Paul Quinn from RBC Capital Markets. Please go ahead.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay, thanks very much. Good evening guys. I had just question on exterior -- North American exterior siding growth. You had very strong growth in the quarter, but one of your competitors grew even faster. Do you feel that you're losing market share and there are things that you can do to catch up?

Jack Truong -- Chief Executive Officer

Yeah, Paul, I think -- first of all, I think our competitor has had a good quarter. I think what you should really look at is that the trend line over time. We -- a year ago, fourth quarter we had double-digit growth. And now we also had double-digit growth, whereas it was the negative growth for our competitor a year ago. So it's really about, if you look at it from the point of trend line perspective, it's actually we are -- for the last 12 months that we actually outperformed our two key competitors.

Paul Quinn -- RBC Capital Markets -- Analyst

And do you think that just as a follow-up do you think that's going to continue going forward that?

Jack Truong -- Chief Executive Officer

Absolutely, and every intention that's the strategy of -- really continue to partner closely with our customers. In push/pull, we're investing to reach homeowners directly to expand our footprint even more within the R&R market. And as the innovation that we planned to launch very shortly to go into adjacent category to really drive more growth above markets. Absolutely.

Paul Quinn -- RBC Capital Markets -- Analyst

Thanks guys.

Jack Truong -- Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from Peter Wilson from Credit Suisse. Please go ahead.

Peter Wilson -- Credit Suisse -- Analyst

Thank you. I might just follow that one up on Q4 volumes in North America. So I take the point that PCP had double-digit growth, but that was also true of the third quarter. Yeah, I guess the relative growth rate did slow that in the fourth quarter, 12% exterior as 1% interiors. Is there any other factor that you could highlight to why that growth rate might have slowed?

Jason Miele -- Chief Financial Officer

Yeah, Peter. I think one thing you got to consider when you are thinking about third quarter growth versus fourth quarter growth is we typically in the US, there is a housing cycle where the third quarter dips. So we would have certainly seen that in the prior year. This year that did not occur. Coming out of COVID the market has been strong straight through. And so you would have seen our volume in North America grow in Q2 grow again in Q3 and grow again in Q4. If I'm talking [Indecipherable] whereas in the prior year, you would have had that normal seasonal dip in Q3, but that if you're looking at our Q3 growth versus our Q4 growth that explains part of it.

Peter Wilson -- Credit Suisse -- Analyst

[Speech Overlap] Are you effectively saying that there was a bit of a pull forward this year into the December quarter and that's why the March quarter was a little bit soft?

Jason Miele -- Chief Financial Officer

No, I'm saying that Q3 last year had a normal seasonal dip. So the Q3 comp this year appears stronger than the Q4 comp price increase.

Peter Wilson -- Credit Suisse -- Analyst

There was also for -- about the Texas event. And you said you are able to mitigate it on the supply side, was there any effect on the demand side in terms of --?

Jack Truong -- Chief Executive Officer

No, we have had strong demand ever since the last May Peter.

Peter Wilson -- Credit Suisse -- Analyst

Okay. And just one last one if I could on Europe. The new target 13% to 16%, in the press I would say that was versus the prior guidance of 10% it may well be that I just missed it, but I understood your prior target was for FY22 of 14% plus EBIT margin. So just a question on that. And I guess, versus the Q4 15% why you might be expecting that to soften a little bit?

Jason Miele -- Chief Financial Officer

Yeah, Peter. Fair point on the -- we did look to target of exiting FY22 of 14%. The 10% is a reference to when we acquired Fermacell [Phonetic]. We said multiple times that we expected it to be in the first couple of years, 10% EBIT margin business, but those are both still valid because they use the 10% which we've referred to more time, but we certainly still expect just like we exited this year 15%, which was one year early to hit that 14% target, that target still remains as well. As far as softening Q4 as a high volume quarter for the European business, and so they did get some leverage to deliver that 15% EBIT margin. So we don't see the range as a softening, it's just like any entity there is a range to consider things like inflationary pressures, etc.

Peter Wilson -- Credit Suisse -- Analyst

Okay, sure. And if we think about, I guess long-term you have targets. It was always Hardie's type was a long-term target, which I think many interpreted to be 20% by FY '30. Is Hardie's type still the expectation? I assume you are closer to the APAC and US eventually?

Jack Truong -- Chief Executive Officer

Yeah, we set a 10-year target of EUR1 billion of revenue and 20 plus EBIT margin that's still stands. This is a target range for the next three years. Obviously as you get localized fiber cement manufacturing and a few other things we can continue to drive that margin to that 20% long-term target.

Peter Wilson -- Credit Suisse -- Analyst

Okay, thank you. I'll leave it there.

Operator

Thank you. Your next question comes from Peter Steyn from Macquarie. Please go ahead.

Peter Steyn -- Macquarie Research -- Analyst

Thanks, Jack and Jason. Sorry, I was going to cancel that, but perhaps I'll just follow up with a quick question on the back of Pete's question on Europe. Very strong performance, Jason, you pointed to the seasonal performance, but could you just talk to us about the commercial state of the business generally. You've seen a bit of momentum growing there, but where are things that the execution of push/pull in particularly in Europe?

Jack Truong -- Chief Executive Officer

Yeah. So, Peter, as I just mentioned in the call is that we are, we are now operating as a globally integrated company. And so the global strategy that [Indecipherable] really started to be executed here in North America in the past two years as really been now unwell and understood and then start to be replicated in Europe. There is down about nine months ago in earnest. So the team there is really working closely together as European team and then well connected to the North American team and Asia Pacific team to really understand the global strategy and more importantly, understand how to execute that locally. So that the focus on the critical few priorities and then focus on the high-value products that the market need and really drive the penetration into the marketplace within the year. The key driver that allow to have three good quarters in Europe and then really culminated in the record quarter this past fourth quarter. Let me give you one example and that one of the high margin products in Europe is, is our fiber gypsum floor products. So doing during COVID time a lot more people stay at home. And so the -- our flooring products has great acoustic [Indecipherable] properties, as well as the impact resistance. So during the past really nine months and 12 months that the team was able to get very good traction to repair and remodel markets to penetrate with our fiber gypsum flooring product. This is really high margin, high -- the average selling price and that was penetrated German markets, penetrated Benelux and markets in Switzerland markets that gave rise to a very good profitable growth for our business in Europe. So as you read about the global strategy start to gain traction at local execution in the right way to get to the result that you saw in Q4.

Peter Steyn -- Macquarie Research -- Analyst

Thanks, Jack. Really appreciate that specific example. Cheers.

Jack Truong -- Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from Keith Chau from MST Marquee. Please go ahead.

Keith Chau -- MST Marquee -- Analyst

Hi, Jack and Jason again. Jason, maybe first on to you. The eight day shutdown of the plants in Texas, did that have an impact on overall volumes for the quarter or did you manage to catch up on volume that may be missing when plant was shut down?

Jack Truong -- Chief Executive Officer

Very, very good question Keith. I think with what we're able to do, first and foremost is that with the lean operating system that we have that was, we were able to shut down the plant quickly and keep it really maintained during frozen eight days, and then we're able to come out very smoothly on the other side and that was a huge help in terms of how we are able to recover and respond in the marketplace. And of course we look at loss of eight days of production in our two Texas plant, which is a very big volume that of course is not something that we can recover fully in that volume was really the end of the day what we look at is that volume price mix. And so we are able to work closely with our customers and the vehicles of the mix the right holistic decision balance them volume and then mix in price to be able to come out with a very good set of financial that deliver on net sales and then EBIT dollars for the quarter.

Keith Chau -- MST Marquee -- Analyst

Thanks, Jack. That's very helpful. So, my interpretation of that comment is volumes weren't necessarily impacted, but they might have been some recoveries that's where hired or you weren't able to recover cost as effectively as you may would have otherwise, if you didn't have that shutdown. Would that be the right interpretation?

Jack Truong -- Chief Executive Officer

Exactly.

Keith Chau -- MST Marquee -- Analyst

Okay, thank you. Yeah. And then the second follow on is just on your LEAN targets. So obviously tracking toward that $139 million global target, but I don't think I've seen updated targets beyond FY22. Can you just give us a sense of how to I guess interpret what the potential benefits could be going forward? Whether you're expecting North America LEAN benefits to be north of $100 million and if so, by when and the same discussion for the other regions, please. Thank you.

Jack Truong -- Chief Executive Officer

I think by giving a new EBIT margin target for both North America and APAC is very kind of a signal here little bit is that, yes. So we will have new LEAN targets and that will be announced at the Annual Investors' Day next week Keith.

Keith Chau -- MST Marquee -- Analyst

That's great. Thanks very much Jack. Appreciate it.

Operator

Thank you. Your next question comes from Simon Thackray from Jefferies Australia. Please go ahead.

Simon Thackray -- Jefferies Australia -- Analyst

Thanks very much. I think Keith got in ahead of me on the sequential North American volume growth and why margins went down sequentially. So I'll park that one. Thanks, Keith. Just a quick one on the New Zealand leaky claims and the press reports that coming out of New Zealand on the $200 million class action. Is there anything to sort of update us with respect to New Zealand around that?

Jason Miele -- Chief Financial Officer

Yeah, Simon the press you're seeing the past couple of days is related to a case that just began on Monday in the Auckland High Court, and then there was also a case that completed in December of 2020 in the Wellington High Court. We'd expect to hear the Judge's findings from that in the middle of this year. And for now we're going to leave that until there -- one of the High Court does rule on one of those cases.

Simon Thackray -- Jefferies Australia -- Analyst

All right, thanks. Thanks guys. Appreciate it.

Operator

Thank you. Your next question comes from Brook Campbell Crawford from JPMorgan. Please go ahead.

Brook Campbell Crawford -- JPMorgan -- Analyst

Yeah, thanks. Just one quick follow-up on, again, on North America volumes. Just wondering if you're able to provide a sense of how exteriors in North America are tracking in the current quarter? What sort of growth rates?

Jack Truong -- Chief Executive Officer

So booked -- for the North American volumes, we are in the high teens.

Brook Campbell Crawford -- JPMorgan -- Analyst

Okay, great. Thanks.

Operator

Thank you. There are no further questions at this time. I'll now hand back to Dr. Truong for closing remarks.

Jack Truong -- Chief Executive Officer

Well, thank you all very much for joining us today. I really just would like to take the opportunity to extend my gratitude and thanks to all James Hardie colleagues around the world. Our exceptional financial results in fiscal year 2021 are really direct results of the continued execution of our global strategy. The progress that we have made over the past two years to fundamentally transform how we operate is nothing short of extraordinary. The efforts in this regard has put us in [Indecipherable] to enable significant future global growth. We're truly a new James Hardie company, a company that leverages on its global reach, global capabilities, and global scale to execute and deliver on financial results consistently. I'm excited for what the future holds as we embark on this next phase of profitable growth. Thank you all and have a great day.

Operator

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Jack Truong -- Chief Executive Officer

Jason Miele -- Chief Financial Officer

Peter Steyn -- Macquarie Research -- Analyst

Keith Chau -- MST Marquee -- Analyst

Brook Campbell Crawford -- JPMorgan -- Analyst

Simon Thackray -- Jefferies Australia -- Analyst

Sophie Spartalis -- Bank of America -- Analyst

Lisa Huynh -- Citi -- Analyst

Paul Quinn -- RBC Capital Markets -- Analyst

Peter Wilson -- Credit Suisse -- Analyst

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